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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » WHERE SRI LANKA ECONOMY HEADING?

WHERE SRI LANKA ECONOMY HEADING?

+3
nigma
Teller
Quibit
7 posters

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1WHERE SRI LANKA ECONOMY HEADING? Empty WHERE SRI LANKA ECONOMY HEADING? Tue Apr 07, 2020 2:57 pm

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
1.Sri Lankan restricts Citizens from making payments through Outward Investment Accounts for overseas investments for three months
Prime Minister Mahinda Rajapaksa, who is also Finance Minister, has issued an Extraordinary Gazette suspending Sri Lankan Citizens from making payments through Outward Investment Accounts for overseas investments for three months. This order was made under the Section 22 of the Foreign Exchange Act Number 12 of 2017

a) Suspend any outward remittances other than the remittances on current transactions through Business Foreign Currency Accounts or Personal Foreign Currency Accounts held by persons resident in Sri Lanka;
b) Suspend the repatriation of funds under the migration allowance through Capital Transactions Rupee Accounts by the emigrants who have already claimed migration allowance
c) Limit the eligible migration allowance for the emigrants who are claiming the migration allowance for the first time up to a maximum of USD 30,000 ;

2. Import Restrictions
As per the provisions of the Monetary Law Act No. 58 of 1949, the Banking Act No. 30 of 1988, and the Foreign Exchange Act No. 12 of 2017, the Central Bank of Sri Lanka introduced several measures to ease the pressure on the exchange rate and prevent financial market panic due to the COVID-19 pandemic

Accordingly, licensed commercial banks and National Savings Bank are directed to adopt the following measures during the next three months, with immediate effect:

a.Sri Lanka central bank stops ‘non-essential’ imports
b.Suspend the purchase of Sri Lanka International Sovereign Bonds by licensed banks in Sri Lanka
c.Authorised Dealers of foreign exchange are only allowed to issue foreign currency notes as travel allowance up to a maximum of USD 5,000

5.Colombo stock market closed
In view of the extension of the curfew by the Government indefinitely, the Colombo Stock Exchange (CSE) will remain closed for Trading from 01st April until the curfew is lifted, the CSE said.

6.Sri Lanka suspends all restrictions on foreign currency inflows
The Cabinet has decided to suspend all restrictions on foreign currency inflows into Sri Lanka during COVID - 19 preventive period, defined as the three (3) months commencing 2 April 2020

7.Central Bank appeals for foreign currency deposits from Sri Lankans to boost reserves to aid crisis fight
The Sri Lankan Central Bank invites all Sri Lankans living here and abroad to consider depositing their savings and other foreign-currency funds within the Sri Lankan banking system.This offer is valid from today on for three months (April 2, 2020).

8.Central Bank eases key rates to support ailing economy amidst COVID-19 Pandemic spread
The Central Bank on Monday surprisingly cut the key policy rates by 25 basis points with effect from 17 March and the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of licensed commercial banks (LCBs) by 100 basis points to support economic activity with the rapid global spread of the COVID-19 pandemic and its possible further spread in Sri Lanka.

9. Sri Lanka Coronavirus arrival ban at airports extended indefinitely
Sri Lanka has extended a ban on arriving passengers at the island’s airports indefinitely, though cargo, departing and transit passengers would continue to be allowed.

LIKELY IMPLICATION:
- USD/LKR Exchange Rate LKR 220-230/=
- Negative GDP Growth (-2%)
- Hyper Inflation (Introduction of Rs 10,000/= Currency Note)
- Foreign Debt Default (First time in the history)
- Stock Market Crash (Due to sharp decline in Corporate Earnings)
- Public Unrest (Due to non availability of Alcohol and Cigarettes)

CAUSE
- CoronaVirus
- Peanuts, Butter and Jelly



Last edited by Quibit on Tue Apr 07, 2020 5:47 pm; edited 4 times in total

2WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Tue Apr 07, 2020 4:43 pm

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
The Sri Lankan economy, is heading into an economic recession in the face of the COVID – 19 crisis, Dhananath Fernando, Chief Operating Officer of Advocata Institute said.

“…it will be a very difficult time for Sri Lankans as well as for all global citizens. For Sri Lanka it will be a double whammy,” Fernando said in an interview with News1st.

He predicted that the South Asian island nation’s gross domestic product (GDP) will decline to less than two percent by the end of 2020.

Sri Lanka kicked off the year with a GDP rate of 2.6 percent, and has to settle USD 4.8 billion as external foreign debt, the highest debt repayment amount for the country within a single year.

“Operating the markets [sic] finding a solution to do that is also critically important while on the medical front we are taking the necessary measures,” the COO of the policy-based think tank noted.

He pointed out that the government should not consider printing money to ease the pressure of the rupee which has depreciated to 192 rupees against the US dollar.

Fernando pointed out that the government can opt to obtain a loan of USD 1 trillion from the International Monetary Fund (IMF) or obtain a bilateral loan to delay the economic crisis.

The IMF has already approved a USD 1.5 billion three-year loan for Sri Lanka in 2016. “We really have run out of options,” the COO of Advocata Institute said.

Recently, the IMF announced that it is ready to lend USD 1 trillion to countries grappling with the outbreak of COVID – 19.

Fernando cautioned that the people should prepare themselves mentally for the post COVID – 19 period as it would be gruelling to the country’s economy.

He said that six-week-long working days, unemployment, pay cuts, a drop in profits and tax collection, depreciation of property, and price wars could be experienced once the pandemic is dealt with.

Watch the full interview here

3WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Tue Apr 07, 2020 4:47 pm

Quibit


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Sri Lanka makes fresh helicopter drop of liquidity as nation fights off Coronavirus[/size]
Monday April 6, 2020 07:04:38
WHERE SRI LANKA ECONOMY HEADING? 2020-04-April-Helicopter-drops-lg

ECONOMYNEXT – Sri Lanka has made another helicopter drop of cash pushing up excess money in the banking system with monetary instability already triggered, the rupee slide against the dollar and more trade controls were promised, as the country fights off Coronavirus.
Liquidity injections not only makes the currency fall, making medical supplies more expensive, excess rupees also generate ‘foreign exchange shortages’ undermining the ability to import food, critics say. 

Sri Lanka’s health sector, public health inspectors and the military is making progress seen in few countries in curbing the domestic spread of Coronavirus, implementing a contact tracing strategy, though some gaps have been found, especially in quarantine.
But a yawning gap exists between health and economic policy, critics say.
Politicians are asking people to grow vegetables with more trade controls promised.

[size=16]The rupee fell below 195 rupees in the one week forward markets Friday, while it was down further in the 12-month trades. 

Liquidity injections which pushed down rupee rates and dislocated the dollar credit markets at the same time had reduced interest rate differential and thinned out swap premiums, market participants said, adding to Coronavirus jitters.

When the rupee falls, concerns rise among lenders increase about the ability to repay dollar credit.
Sri Lanka’s Consumer Affairs Authority had also slapped price controls, disrupting activity at economic centres, making basic foods like tinned fish and dhall disappear.

Excess Money
Excess money in the banking system jumped to 118 billion rupees on April 03, from 68 billion rupees on April 01, data from the central bank shows in the latest helicopter drop style, liquidity shock.
Liquidity shocks generate an imbalance in the balance of payments, triggering more outflows than inflows, at a time when regular inflows from exports and other sources are falling, analysts say.
Sri Lanka’s central bank operates a pegged exchange rate, collecting forex reserves, but also targets a call money rate, triggering currency collapses. 

Risks to the economy worsened after the monetary authority started narrowly targeting a call money rate within the policy corridor with excess liquidity, generating monetary instability even when private credit was weak, analysts have said.
At the moment, liquidity injections are being made as tax revenues shrink amid a Coronavirus driven abrupt halt to economic activities, immediate relief given to tax payers and a controversial value-added tax cut made in the name of ‘stimulus’ in January, triggering a widening of the deficit.
While deficits themselves do not cause currency collapses or balance of payments crises, deficits financed by central bank credit (liquidity injections) generate monetary instability and forex shortages.

Liquidity Shocks
Sri Lanka had monetary stability until January 2020. The first ‘helicopter drop’ style liquidity shock, came in the form of a profit transfer of the central bank in the last week of February, which was not mopped up, starting the slide.
On March 13, the monetary authority’s Treasury bill stock a proxy for central bank credit, went up to 128 billion rupees, up from 78 billion rupees, in another liquidity shock, as a second helicopter drop was made. On March 17 over 50 billion rupees were released by a reserve ratio cut.
Due to the Coronavirus crises, there could be a higher demand for cash – an increase in real demand for money. Accommodating a higher real demand for money does not push the exchange rate down as the process is a form of private sector sterilization, analysts say.
However the central bank had issued money enough to generate high levels of excess liquidity, which points to the over-issue of money.

On March 24, the bill stock went up to 178 billion rupees, without a big change in liquidity, which usually points to a reserve outflow, analysts say. 
The rupee had already started to fall, triggering uncertainty among market participants.

Nixon Shock
On March 24, day banks borrowed 41 billion rupees from the central bank’s overnight window, up from 4.3 billion rupees a day earlier, and deposited 118 in the excess liquidity window, indicating unwillingness among interbank market participants to take counterparty risks, analysts say.
It was the Monday after the central bank slapped trade controls in a Nixon-shock style move. 
President Nixon also slapped trade controls as the US dollar collapsed in 1971, breaking its peg with gold after money was printed leading to the collapse of the Bretton-Woods system of soft-pegs.
The US now has a free floating exchange rate, and there is no export of gold from the Fed. 
The central bank also printed money and slapped Nixon-shock style trade controls in 2018 and had done several times in the past. In the 1970s the entire economy was closed around the time of the original Nixon-shock in the US.
Politicians also told people to grow vegetables and yams at the time. Countries in East Asia, which were run by classical economists who did not believe in central bank credit maintained monetary instability and free trade.

Dollar Bonds
In the past the falling rupee and the loss of forex reserves due to liquidity injections had triggered downgrades, making it difficult to re-finance debt.
When foreign investors see the rupee fall, confidence in the ability of a country to service dollar debt falls. 

The central bank also barred local banks from buying sovereign bonds, as part of the first Nixon-shock, further undermining liquidity for sovereign bonds and pushing yields up, dealers said.
Sri Lanka’s Treasury Secretary S R Attygalle last week said the government had no intention of defaulting on sovereign bonds and yields of the 2020 October bond fell and the prices recovered.
Sri Lanka has over 7 billion US dollars of reserves and all debt would be repaid, he said. 
Sri Lanka has twice repaid maturing sovereign bonds, when markets were jittery or there was domestic political uncertainty. In 2015 a 500 million US dollar bond was repaid and in 2019 a billion US dollar bond was repaid, without going to market. 
Sri Lanka also has dollar inflows coming in, including a 800 million US dollars from China, Attygalle said. The World Bank has also given a 128 million US dollar credit.
There are also committed and undisbursed foreign loans balance of over 9 billion US dollars of which over 1.5 billion US dollars are expected to disbursed this year.

Sri Lanka’s central bank stopped quasi-fiscal re-financing in the mid 1990s after central bank re-finance of credit led to steep currency depreciation in the 1980s. (Colombo/Apr05/2020)
[/size]

4WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Wed Apr 08, 2020 10:34 am

Teller

Teller
Moderator
Moderator
New target sets for USD /LKR, upto 228 LKR as per Reuter in medium term. Im not sure about the realastic about it. How ever it confirms 210 LKR


_________________




Teller said is said..

5WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Wed Apr 08, 2020 12:34 pm

nigma


Manager - Equity Analytics
Manager - Equity Analytics
Today...200.47

6WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Wed Apr 08, 2020 6:03 pm

Teller

Teller
Moderator
Moderator
💥💥💥💥💥💥💥💥💥💥💥💥💥💥💥💥💥🚣🚣🚣🚣🚣🚣🚣🚣🚣🚣🚣🚣🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🚀🧤🧤🧤🧤🧤🧤🧤😯😯😯😯


_________________




Teller said is said..

7WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Thu Apr 09, 2020 2:51 am

Yahapalanaya

Yahapalanaya
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Becoming another Somalia in Southasia...

8WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Thu Apr 09, 2020 8:48 pm

samaritan


Moderator
Moderator
The Govt should request China to write-off loans given to Sri Lanka as a goodwill gesture in the back drop of the corona crisis which has taken its toll on the economy of the island nation.


_________________




The biggest risk in life is not taking any risk at all.

9WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Thu Apr 09, 2020 10:01 pm

kasun_gimhana

kasun_gimhana
Manager - Equity Analytics
Manager - Equity Analytics
I think selling is not a solution for forigners 
WHERE SRI LANKA ECONOMY HEADING? Usd10

10WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Fri Apr 10, 2020 3:32 am

Yahapalanaya

Yahapalanaya
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@samaritan wrote:The Govt should request China to write-off loans given to Sri Lanka as a goodwill gesture in the back drop of the corona crisis which has taken its toll on the economy of the island nation.

EU provides EUR 22 million grant to Sri Lanka



9 April 2020 11:23 am - 24      - 3156

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The European Union (EU) said it will provide a EUR 22 million grant to support Sri Lanka's COVID19 response.
The EU and its Member States are working with partners around the world to tackle the outbreak of the coronavirus pandemic and mitigate the effects of the crisis, the EU said in a statement.
The EU’s response follows a ‘Team Europe’ approach, aimed at saving lives by providing quick and targeted support.
This includes improving the preparedness for and response to the outbreak, and funding research to support the development of coronavirus vaccines and medication to help those affected.
Sri Lanka’s very low number of confirmed cases of COVID-19 so far is impressive. To support Sri Lankan efforts further, the European Union is targeting three sectors: health, agriculture and tourism.
For health, the EU will be providing EUR 2 million for equipment and medical supplies to be procured by the World Health Organisation and to strengthen laboratory networks in the country.
Sri Lanka’s agricultural sector will benefit from EUR 16.5 million funding. In these trying times, maintaining open trade and safeguarding the supply chains, especially agricultural and health supply chains, is essential to the well-being of the population. This funding will take into account the impact of Covid-19 by mobilising more private capital in rural areas and by assisting small businesses and workers in the Uva and Central Provinces. Finally, the European Union will support the Sri Lankan tourism industry with a EUR 3.5 million grant, in particular the smaller operators and their employees. Some of the assistance will be provided immediately and the rest will be delivered later in the year and will continue thereafter.
This was discussed during a meeting between the EU Delegation, the Ambassadors of France, Germany, Italy, the Netherlands, Romania and Task Force Chair Basil Rajapaksa on 08 April 2020, during which they also commended the Government of Sri Lanka for the close cooperation in ensuring the safety and wellbeing of its citizens and European tourists.
The Ambassadors of France, Germany, Italy, the Netherlands, Romania and the EU Delegation said “We are impressed with the low number of cases in Sri Lanka so far. The European Union and its Member States are looking at the best way to support these efforts, and have mobilised EUR 15.6 billion overall to tackle the consequences of COVID-19, and to improve preparedness further. It is only together that we can fight the spread of coronavirus and alleviate its human and economic consequences around the world.”
See the differance between Chinees loan and Western country grants.Now you can eat couple of days.... Smile Smile Smile

11WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Fri Apr 10, 2020 5:47 am

Teller

Teller
Moderator
Moderator
In this kind of situation , going for an election is not a wise idea. as a country we have to put a maximum attention to control the situation . Remember we fight with an invisible virus, i believe the good way President and army can run the country easily. This is a really extraordinary case for the whole world.


_________________




Teller said is said..

12WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Fri Apr 10, 2020 11:57 am

Promoney


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
If you allow the constitution to be violated and a military rule to be established even for once. Any future leader will use it as a precedent and any excuse to do it again and again. Will cause dictatorships and anarchy.

13WHERE SRI LANKA ECONOMY HEADING? Empty Re: WHERE SRI LANKA ECONOMY HEADING? Fri Apr 10, 2020 12:00 pm

nigma


Manager - Equity Analytics
Manager - Equity Analytics
100% agreeed...

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